This paper will primarily focus on Tesco, based in the UK. The aim of this study is to throw light upon the competitive environment and the internal capabilities of the company and how the same have combined to the development. The first few pages of this case study will give a brief history of the company and what changes have taken place in the company over the past few years. This paper will also bring to light the Subprime Crisis and the possible effects of the same on various companies all across the globe. The last part of the paper will compare Tesco with Sainsbury. A comprehensive analysis of all the above will be presented in this paper.
Background of the Company
Tesco is based out of the UK, dealing mainly with grocery items and general merchandising retail chain. If the global sales and domestic market share of the company is taken into account then it is found that the company is the largest British retailer by far. The profit of the company exceeded £2 billion for the year 2008 and it is believed that the profit will be much higher in the year 2009. The company mainly focuses upon food and drink but it has also started dealing in clothes, financial services, internet services etc.
“Tesco started life in 1919 when Jack Cohen started selling surplus groceries from a stall in the East End of London. Mr. Cohen recorded a profit of £1 from total sales of £4 on his first day.” (A History of Tesco, 2009).
The brand Tesco first appeared in the year 1924 when Jack Cohen supposedly bought a tea shipment from Mr. T. E Stockwell. The year 1929 marked the opening of a store in North London and the company rapidly developed from there on. The head quarters of the company was first established in North London in the 1930s. In the year 1932 the company became a private limited company, another feather in the cap of Tesco.
Expansion of the Company
The expansion of the company traces back to the year 1950 when the company quickly bought rival shops so as to expand and compete with other Giants. In another endeavor to do so, the company bought as many as 70 William stores and an unprecedented 200 Harrow stores. 1960s saw a revolution in the supermarket trend, the stores started selling more products in larger shops and Tesco was quick to capitalize on the very same opportunity. In the year 1961, the Guinness book of records acknowledged that Tesco was the largest store in the whole of Europe and more growth followed as the company opened another Superstore in Sussex.
“Supermarkets once and for all changed the way people shopped and by the 1970s Tesco was building a national store network to cover the whole of the UK, which it continues to expand to this day, while also making other products available to its customers.” (A History of Tesco, 2009),
The company recorded annual sale of £1bn in the year 1979 and the sales doubled by the year 1982. The year 1987 was historical for the company as the company completed a successful takeover of their supermarket rivals Hillards for a whopping £220m. The term superstore was an alien term but Tesco was the first company to introduce this term, the term referred to two aspects of the company, namely the size of their store and secondly the vast choice of inexpensive food and other items to choose from. The appearance of the stores mattered a lot and in order to ensure that the stores looked great, the company spent massive amount in order to put some daylight between their competitors. The company also took into account the parking space for the customers and ensured that their customers were provided with enough space and a wide range of products to choose from. The company was the first to install enhanced lightning and also widened its aisles. The company extensively worked on providing its customers with fresh food items to choose from. The company stopped depending on the manufacturers by opening a centralized warehouse to cater to the demands of its various stores spread across the whole of Europe. The company teamed up with Marks & Spencer to establish stores in all major cities, in an attempt to do so the company established a 65,000 square foot superstore which was established in the vicinity of another Marks & Spencer store which was about 69,000 square foot in area.
The efficiency of the company was greatly improved when the company introduced a new policy called the six warehouse distribution system; in this system the company established many central warehouses which took care of the needs of all the stores located in different cities. The company had already established as many as 371 stores in England by the 1990s, among these 371 stores 150 of them were superstores which provided a very wide range of products to choose from for the customers. The company became one of the top three stores in the UK and this was a result of the company’s endeavors to provide the customers with varied options to choose from. The company has had its fair share of tough times too, in the year 2001 a black mailer tried to extort £5m from the company with the help of a parcel bomb. He failed in his endeavor to do so and was arrested and jailed for 16 years. The company was also accused of pushing out the small retailers out of business, according to a research done by a non-profit organization it is believed that small retailers lose as much as £100bn very year because of the centralization of the supermarket. The next part of the paper will throw light upon the recent economic crisis and the crisis will be discussed in detail.
Subprime Mortgage Crisis
The purpose of this study is to bring to light the mechanism of an economy and banking system. The study focuses on subprime crisis that has hit the US in the last two years. The study throws some light on the adverse effects of the crisis on the US as well as other economies of the world. The study also mentions the recent shut down and take-over of Lehman Brothers and also the problems faced by AIG to borrow money.
One of the most important responsibilities for the Fed is that of ensuring monetary stability in the economy, which can be achieved through a combination of stable prices of goods and services across the economy coupled with a low inflation level and level of confidence of the investors in the currency of the country. The Fed comes out with the monetary policy in order to ensure a certain key objectives like, delivering price stability with a low inflation level coupled with an objective to support the Government’s economic objectives of growth and employment. To understand how the Fed monitors price related regulations to keep a check on inflation, we may consider a small example of the regulation of house and property prices. To take any decisions related to interest rates keeping in mind the ongoing inflation rate, the Fed must be thorough with the booming property prices and must take steps to ensure that the prices are not artificial.
Government intervenes through its central bank to regulate the prices of many commodities, similarly it also regulates the prices of houses like any other important commodity. Fed has the responsibility to keep a check on asset prices including the prices of houses. There can be a number of reasons why the prices of houses may shoot up, like the simple rule of demand and supply has a definite impact. (Demand and Supply for Housing).
Other reasons behind a change in property prices can be Mortgages. A mortgage is the money borrowed to buy a house, as for most people buying a house is not easy. Over the years mortgage market has picked up greatly and the current scenario is totally different from the one that existed in the beginning. Mortgages were supplied only by the building societies. Building societies were non-profit institutions and encouraged only the members for the grant of loans, so the people who were members and had contributed to an extent for a considerable period of time got loans easily and account with building societies became the only means to get mortgages. Soon these societies had to compete with the banks and other financial institutions specialized in granting housing loans. This price war resulted in a greater demand for owner occupied houses and consequently the demand for houses grew stronger, resulting in a substantial increase in price. (The UK Housing Market – Factors Influencing the Housing Market: Mortgages).
Besides the above-mentioned factor of mortgages there are other factors like stamp duty and planning that affect the market for housing. Mortgage interest relief at source (MIRAS) was a tax concession to owning a house. This made borrowings cheaper and as a result there was a huge demand for housing and the prices shot up. With the introduction of MIRAS in 1990 many people were exempted from stamp duty. (The UK Housing Market – Factors Influencing the Housing Market: Stamp Duty and Planning).
The central bank sets a fixed interest rate at which it lends money to financial institutions and depending on this interest rate, individual banks and other financial institutions set up their own interest rates, which apply to the whole economy. This step is of indispensable importance to the economy, as this is very widely used to contain inflation. The only purpose behind such a step is just to contain undue inflationary levels prevailing in an economy. The point to be noted here is that, this interest rate set by the Bank of England is so effective and powerful that it chips in greatly to regulate the whole economy. It affects the stock and bond prices and also influences the asset prices throughout the country. This interest rate also regulated the savings in an economy, which eventually results in capital formation and reinvestment. It is note that when interest rates are high, people prefer to invest money in government deposits that are less risky in nature than the stock markets and similarly high interest rates boost up the savings. Lower interest rates make asset and real estate prices go up, as people start ignoring conventional saving instruments and make use of the high growth ventures like shares and houses, which pushes up their prices. Interest rate change also affects exchange rates, as an increase in the interest rate in US will yield better returns to the investors compared to their overseas ventures. This phenomenon usually makes US dollar assets attractive, which pushes up the value of the currency vis a vis other currencies, and a stronger US dollar would mean less money would be shed on imports and less quantity of exports will take place as there will a lesser demand for products made in US because of the currency being strong. It is interesting to understand the process of how the bank sets interest rates.
The primary step in this direction starts with the estimates of the money flow that takes place between the government and the Central bank, and the Central bank and commercial banks. The Fed makes sure to rectify all the imbalances, which arise along the path on a daily basis. There can be two phases to the money flow that takes place between the system, first, when more money flows from banks to the government and second, when more money flows from government to the banks. In first case, Fed’s liquid assets come down, which affect the short-term instruments of money market. And in the second case the market finds itself with a cash surplus. The Fed is the bank of the government as well as the bank of all the financial institutions and commercial banks, so it chooses the interest rates for the funds to be provided each day, and this interest rate is passed through the financial system, which influences the interest rates of the country. (How Monetary Policy Works). The diagram given below explains better
The above diagram explains the concept of system regulation. It shows that the official rate, which is set by the Bank of England, influences many parts of an economy such as market rates, asset prices including the house prices, expectations, and exchange rate. This gives rise to demand which is the sum total of domestic plus external demand which in turn gives rise to inflationary pressure resulting in inflation. Another important point shown, which deserves a mention is the relationship between the exchange rate and import prices, or the price paid for imports. As explained above, the stronger the exchange rate the lesser the price paid for imports and the weaker the currency the higher the price paid for imports. (How Monetary Policy Works).
A change in interest rates is mostly used to contain inflation, which is the result of lavish expenditure by the country. When interest rates are high, people prefer to invest money in government deposits that are less risky in nature than the stock markets and similarly high interest rates boost up the savings.
Subprime Crisis and Its Effects
The subprime crisis started with the subprime lenders lending at higher rates than usual to the borrowers with bad economic history and lesser ability to pay back. The subprime lending functions on the principle of no collateral and higher interests. There debt instruments are then traded and are passed on to other banks or institutions which are ready to take them for the higher interest they get out of them.
Effects on the US and World Economies and Recent Shutdowns
Due to the passing on of the debt instruments some prominent hedge funds have failed to declare their current asset values. The problem has led to a total crunch of liquidity in the US. The markets witnessed BNP Paribas announce that it had frozen 3 of its hedge funds due to evaporation of liquidity, totaling around 1.6 billion pounds. The reason was that, it was not possible for the bank to value units of the funds due to the affect of the US subprime market on them. The funds contained the bundles of subprime loans, the demand for which have fallen drastically over the last few months. Banks around Europe feared a total liquidity crunch as they feared that they might run out of cash to sustain day to day lending. ECB went to the extent of injecting 155 billion pounds to ease the system of. Investors around the world started backing off from the markets fearing the ill effects of over exposure to the mortgage markets. (How the US Subprime Mortgage Crisis Affect Irish Markets).
The high liquidity crunch faced by the US has made the Fed cut key interest rates several times over the last one year. The liquidity crunch that the US has witnessed had also done bad to the commodity prices and the willingness of the banks and financial institutions to lend each other or even to the consumers. The Bank of England has also cut rates to 4.5 percent in its latest monetary policy. This would also result in the housing prices falling in the UK as the buyers will not be able to raise mortgage finance and sellers will be forced to cut down their asking prices. The collapse of Bear Sterns has affected their London operations with over 2,000 jobs in London. (Q&A: How will the financial crisis hit us?) Another unfortunate incident that took place a few days back was of the 158 year old firm Lehman Brothers filing for chapter 11 bankruptcy due to the credit crunch. Financial institutions around the world have recorded $ 500 billion credit losses and write-downs due to the subprime crisis. At the end of August, the company is believed to have had assets worth $ 600 billion funded with equity of just $ 30 billion. (Lehman Is In Advanced Talks To Sell Key Business).
AIG also faced the liquidity crunch due to the crisis and approached the Fed for funds as a temporary measure. American International Group was hit to the tune of $ 18 billion in losses over the last 3 quarters due to the guarantees they wrote on mortgage derivatives. (AIG, Facing Liquidity Crunch, Reaches Out to Regulator).
The problem has also had a very deep impact on the equity markets across the globe that has tumbled down to their lowest levels in as many as 6 years. Dow Jones had plunged to below 8,000 levels for the first time after 2003. The latest story on the crisis is that of the US government making available $750 billion to bail out distressed institutions that have been reporting abysmal earnings quarter on quarter due to write downs they have faced in the property market. The Fed seems determined to stem the subprime problem and is prepared not to stand down until the crisis is fully resolved, but it remains to be seen whether the rescue measures will have any impact on the economy in the medium term, for the short term though, it seems like the crisis will take at-least a couple of years to clear itself. It will be long before the US economy starts to revive and look up once again. All the above factors are very likely to affect the growth of Tesco but only time will tell how the growth of the company will be affected.
Brand Loyalty and Club card
In today’s world where there are so many products thronged over every nook and corner of the market, it is an extremely difficult task for a buyer to choose amongst the products. Globalization has made it even more difficult with the entry of several new firms into any business. A buyer while purchasing or making a purchase decision goes through a process and reaches a final decision in favor or against the product, however Branding is perhaps the only powerful tool that not only helps a corporate establish a goodwill, but also helps a buyer in taking a fast decision regarding whether to go for a product or discard it. So Branding undoubtedly facilitates faster decision making with ease. The reason behind this phenomenon is that buyers are generally skeptical about buying any product because they have to spend money and part away from it, in lieu of some goods, which they may not trust in the beginning, until they have used and experienced them for a while. So they look up to a Branded product, as their savior in such an uncertainty. This purpose makes it important for us to do a study on the topic and analyze the importance of Brands and their value in consumers’ minds and the way these big brands help consumers take buying decisions.
The purpose of this study is to find out how big brands make it easy for the customer to buy a product instantaneously, thereby making the whole buying process easy by facilitating the fast movement of products from sellers to the consumers. The research helps to understand the thought process of a buyer to reach a conclusion of buying a product and analyzes the critical factors that go into taking such a decision. The research is aimed to collect some secondary data to better understand the Buyer behavior and buying process. The scope of the study covers all kinds of buyers with different behaviors making buying decisions with regard to different brands.
There is an explanation on the different stages of Consumer Buying Behaviors, namely Need Awareness, Information Search, Checking Options, Purchase Decision, and Post Purchase Behaviors. There is also a detailed explanation on Types of Consumer Buying Behavior in the form of Routine Response Behaviors, which is prevalent in the form of day to day items that do not need though process and are bought instantly, Limited Decision Making, which requires product research to an extent, Extensive Decision Making, which involves products that are unfamiliar, infrequently bought and expensive. The last form of Buyer Behaviors is the Impulse Buying that includes buying on an impulse.
There are a couple of key issues, which are identified by this study and it accordingly makes an effort to sort these issues out and find convincing answers to them in a phased manner with the help of data collected and methodology used. One such issue is the choice of Brands by the consumer. The study has tried to test buyer behavior with respect to Brands or their preferred shopping destination with respect to Grocery, Consumer Electronics and Apparel. There is enough data available on all these sub categories that just goes to show the importance of Brands in the minds of consumers. There is an involvement of CDP modeling in the study that contributes to draw conclusions on the study. CDP modeling is known to apply sophisticated quantitative analytics to consumer decision making processes. It provides insights into the numerous factors that truly drive “why” consumers act in a certain way and what makes them act in that particular way– insights that are missing from separate qualitative and quantitative research studies. Why do consumers choose one particular retailer over the others or why they choose a particular Brand or how that particular Brand helps them take buying decisions is supported by a case study of over 1600 shoppers.
The IBM Institute for Business Value conducted an online survey of a representative sample of the consumers in October 2004. Members of the Greenfield Online panel were contacted and qualified to take the survey based on if they had recently gone shopping for one of the following types of products: Grocery items (within the past 2 weeks), Apparel (within the past 3 months) or Consumer electronics (within the past 12 months).
So the study has taken the data and evolved it into thoughts to identify buyers’ behavior with regard to the above mentioned items.
In today’s world where there are so many products thronged over every nook and corner of the market, it is an extremely difficult task for a buyer to choose amongst the products. Globalization has made it even more difficult with the entry of several new firms into any business. A buyer while purchasing or making a purchase decision goes through a process and reaches a final decision in favor or against the product, however Branding is perhaps the only powerful tool that not only helps a corporate establish a goodwill, but also helps a buyer in taking a fast decision regarding whether to go for a product or discard it. So Branding undoubtedly facilitates faster decision making with ease. The reason behind this phenomenon is that buyers are generally skeptical about buying any product because they have to spend money and part away from it, in lieu of some goods, which they may not trust in the beginning, until they have used and experienced them for a while. So they look up to a Branded product, as their savior in such an uncertainty. Before going on to have a look at Consumer buying behavior, we will have a look at Marketing and Branding concepts separately for our understanding.
Marketing is the process of determining the needs of society, identifying business opportunities, converting customer needs into products, determining the marketing mix, analyzing consumer behavior, and backing all the sub-processes by powerful and precise research. There are myriad sub processes involved in marketing, branding is just one of them, nonetheless, very important.
Branding is the core of marketing and becomes even more critical, when the competition is neck to neck, or when a new product is hitting the market. A brand name provides a personality to a product, makes it popular, ensures a long term success, against a host of other tools like sales promotion, aggressive distribution etc, which can prove to be useful for the short term. So branding as a process is a sub-process of marketing, and hence marketing includes branding, but the latter does not include former. The two concepts mentioned above, are indispensable for any business and it is not possible to imagine a business in today’s world without these concepts, they no doubt have the same roots as well, but still have some notable differences.
The word Branding is of prime importance in the world of marketing. Talking of marketing, the phenomenon primarily involves itself into consumer satisfaction, by analyzing the needs of the consumer in the first place, and then going about meeting their demands and satisfying them. Branding is that part of the crucial marketing process, in the absence of which, customers will find it extremely hard to correlate the products they buy, with the companies, which manufacture these products. Branding is an extremely important process. Just as every single human being in this world has a name, companies find it of utmost importance, to give their products a brand name. This name helps a customer recall their favorite product attaching a name to it, and eventually makes a product very popular among masses, this is the reason companies contemplate a lot before choosing upon a brand name.
Branding should never be confused with marketing, or any other marketing sub-process, say positioning. Marketing begins with customer; on the contrary, branding begins at home. Marketing is extroverted, while branding is introverted, and this is the biggest difference between the two. There is explanation which will prove the same. Branding is multi-faceted, on the other hand, marketing is quick and single minded. Marketing is supposed to work fast and rope in fast revenue, in the short term, branding on the other hand, takes its time, and generally pays dividends in the long run. And lastly, marketing works on the principle of USP (unique selling proposition), but branding involves plurality of statements, which reflect the attitude of the corporate and the personality of the product.
Consumer Buying Behaviors
There are so many products thronged over the market that it is an extremely difficult task for a buyer to choose amongst the products. Consumer buying behavior is phased out in different stages and phases. There is a problem associated with a buyer which needs to be identified and tackled tactfully by the seller. Tackling the buying resistance problem begins with understanding the process of how consumers or companies make buying decisions. Buyers usually go through many stages to make the decision to buy.
Need Awareness, is the first stage in the process. The stage deals with the buyer identifying a need for a product or service. The need can be induced or learned through the various contacts of the buyer like his social contacts, personal contacts. When this need is induced by the company’s marketing strategies, it is usually done through massive advertising, sales promotion and roping in celebrities and famous stars to endorse the products. The process involves going in for an in-depth study of marketing research on the market and its potential, including the target market and revenue expected. Until all these things are not looked and analyzed in detail, a decision concerning establishing a product to meet a buyer’s needs cannot be taken. At this stage the decision-making process may stop if the consumer is not motivated to continue, however, if the consumer does have the internal drive to satisfy the need they have, they will most probably continue to the next step. (Break the Resistance of Consumer Buying Behaviors, 5 Stages of Consumer Buying Behavior).
Information Search is the next step in the process that comes after the need awareness. The step is about the search for information and the research done by the buyer after he has an established need. When assumed that the consumers are motivated to satisfy their own needs, they will next usually undertake a search for information on possible solutions to the problem or need they are facing. The effort the consumers direct towards searching depends on many factors like, the importance of satisfying the need, familiarity with available solutions, and may be even the amount of time available to search. To appeal to consumers who are at the search stage, marketers may make efforts to ensure consumers can locate information related to their product. For example, for marketers whose customers rely on the internet information, attaining high rankings in search engines has become a critical marketing objective. (Principles of Marketing- Part 3: Consumer Buying Behavior).
It is an opportunity for all the sellers in the market because they can make immense amount of information available to the buyer in order to educate him more about the traits and characteristics of the product. Many big and small corporate insist on educating the buyers through web sites, seminars or brochures.
Fundamentals of Marketing
Consumer buying behavior is extremely important in understanding how a brand becomes a loyal brand.Consumer buying behavior predominantly depends on the level of involvement in the purchase decision and that further depends on intensity of interest in the product. There is many a product that is high involvement purchases, like most of the high priced goods are high involvement purchases. These products may have different kinds of risks associated with them, as they are high involvement products. These risks can be Personal, Social, or Economic. These factors determine the kinds of Consumer buying behavior, which are Routine response behavior, limited decision making, extensive decision making and impulse buying. Routine Response or Programmed Behavior is the kind of consumer behavior that deals with buying low priced products that are day to day use items, need very little search and decision effort and are purchased almost automatically. Examples include soft drinks, snack, milk etc. Limited Decision Making is another category under which one needs to obtain information about unfamiliar brands in a familiar product category. This requires a moderate amount of time for information gathering. Examples may include Clothes, as one knows the product class but not the brand Extensive Decision Making or Complex high involvement behavior includes products that are unfamiliar, expensive and infrequently bought. They may have a high degree of economic, performance and psychological risk. Examples of such products include cars, homes, computers, education. Such products generally make a buyer spend a lot of time seeking information and deciding. Last category of buying behavior includes Impulse Buying, which needs no planning or thinking before going on to buy the product. All these factors have to be considered by a company if they have realistic plans of making their brand a loyal brand to customers.
Description of person’s loyalty to a brand
Brand loyalty is the sole aim of many companies because all the companies aim at promoting their product and if more and more people become loyal to the brand of the company that would just what the company would want because this whole process will get the company new customers and once if a customer becomes loyal to the brand of the company, the name of the brand will be suggested to many other people too who are in touch with the person who is loyal to that particular brand. If a customer commits to purchase the same brand again and again that’s when it is called brand loyalty or in other words when a customer shoes loyalty towards a particular brand. Brand loyalty is seen as the greatest asset which a company can possibly have.
Positioning is vital to the success of a product or service in the market. Positioning along with branding determines whether or not a product or service succeeds. Optimal positioning refers to the objective characteristics and benefits of a product that appeal to a specific group of consumers. A yoghurt based drink, for example, might be positioned as a nutritious meal-replacement product in one market while it may be positioned as a fun drink in another market. In an age of sameness, a good brand positioning strategy ensures that a brand differentiates itself by drawing attention to its features and benefits and promoting their value to the consumer.
Positioning becomes an even more vital aspect when it comes to developing countries. Developing countries due to the increasing globalization and flourishing of open market economies form the chunk of the modern market. Liberalized economical structure means that consumers in developing countries for instance in Latin America, Middle East, and Asia have more purchasing power than ever before, sometimes even at par with consumers of developing nations, in fact. Another reason for a good positioning strategy in developing countries is because with several products coming in to these markets, consumers have a vast choice before them. It is therefore imperative that global companies looking for a share of the pie should differentiate their products from those of their competitors through optimal positioning. Let us look at the same example which was mentioned above, that of a yoghurt based drink. Such a drink, as we have seen, may have been placed as a nutrition supplement in a developed country. The same strategy may or may not work in the case of a developing country, due to different factors including the local culture, tradition, and other demographic factors. The same drink after research could be positioned as a fun drink in a developing country, for it to do well.
Marketers are devising newer strategies including bringing out newer models, especially to meet the demands arising out of developing countries. Although this is the trend, companies cannot blindly release new products in developing countries; they need to do a thorough research and analysis to position their products properly in these developing markets. In order to do this, they have to conduct a detailed market research to find out how the local population perceives their product or service. The entire research process consists of in depth interviews along with a study of competitors’ strategies for proper positioning, before the actual launch of the product or service in question. A thorough research along with a detailed analysis of the consumer behavior patterns in developing countries is necessary to get into the psyche of the consumer in developing countries, for what may succeed in North America for instance may not do so in a South East Asian Country. The total demography along with the ethnic distinctness needs to be understood for brand positioning. Research allows companies to find out more in detail about the demographics of the geographical region they plan to target. One can, for instance, find out more in detail about the population’s make up in terms of age, gender, income level, education, family circumstances, and occupation, to mention only a few. Market research also gives an insight into the lifestyle and geographic factors that effect the brand’s positioning. The questions answered by target audience during research interviews help in determining what to sell, how to sell and at what price to sell a particular product or service.
In order to develop an optional brand positioning strategy, enterprises have to undertake a detailed positioning based market research, which involves doing research on a particular sample among the population to find out how people perceive a certain product or service. This is followed by detailed qualitative research with in depth interviews along with a study of competitors’ strategies for proper positioning, before the actual launch of the product or service in question. A thorough research along with a detailed analysis of the consumer behavior patterns in developing countries is necessary to influence buyer behavior trends in developing countries, for what may succeed in North America for instance may not succeed in a South East Asian Country. The total demography along with the ethnic distinctness needs to be understood for brand positioning and proper market research helps in determining these very factors.
Research is also important for determining the promotional campaign necessary for a particular market and gauging the amount of expenditure that would be involved in the entire promotional effort. The expenditure therefore would be then spent on strategically planned communicative advertising campaigns, which are designed to reach the consumers.
The entire research process, to put it in simple terms, involves proper collection of data and for this to happen companies need to look into certain aspects while conducting the research. With enough relevant information, enterprises can determine the best positioning strategy based on their business. This is the reason why during the entire research process the researchers should be focussed on the goal of the research. Every stage of the research should be monitored to adhere to this primary focus.
Once the target audience is defined, then the entire research process becomes a relatively simple process. Even while the research is going on, a simultaneous monitoring of competitor trends should be maintained. Companies should be constantly on guard as competitor research is the key here. This needs to be done because while a particular company is engaged in research, a close competitor may also be engaged in a similar kind of research in the same market. This being the case, monitoring of competitor’s strategies forms an important part of the research process.
Companies can also look for relevant research based information with industry association publications, government statistics, and market reports for a thorough understanding of the particular market in question. This secondary market research data along with the primary research data, helps in developing an optimal positioning strategy in a developing country.
Aims and objectives
The aim and objective of this paper is to look into the factors that contribute towards developing an optimal positioning based on consumer behavior in developing countries. Positioning in simple terms can be defined as ‘how a product appears in relation to other products in a market’. Positioning is vital for the success of any product or service in a developing country or for that matter in any country. True long term success of a product or a service therefore hinges on the proper positioning of a product. In today’s modern world scenario with the advent of the internet and rapid development in communication and communicative strategies, positioning assumes even more importance, since the consumer has a host of choices to choose from. Consumer behavior should therefore be carefully studied in order to influence the minds of the prospects to determine how the target audience would perceive a particular brand. In order to find out consumer perception of a particular product or service, research is necessitated.
It takes a lot of research and utilization of tools like multi-dimensional scaling, factor analysis, discriminate analysis, and multi-attribute composition models to arrive at optimal positioning. Although this is the case, positioning also depends to a major extent on the particular developing country’s geographical location. This is so because even among developing countries, cultures may vary and consumer behavior trends are also subject to change.
With the developing countries forming the chunk of global consumers, more and more brands are being positioned, sometimes exclusively to suit the needs of the developing nations. This is so because consumers will continue to fragment and diversify in their tastes and preferences as they search for newer products and services from their own culture or region and start exploring unique offerings. Such distinct differences have led to the slogan ‘think global, act local’, become the buzzword for success in any market.
For a brand to be successfully launched and sustained in a developing country, brand positioning research, with all the above mentioned factors, assumes vital importance. A brand positioning research should be designed and integrated with creative branding to generate the necessary optimal brand impact and optimal positioning. This paper aims to study the different factors that make positioning in developing countries different from that of developed countries, the research methodology to be followed for the same, the collection of data and analysis of researched information, analysis of the research outcome, and finally to implement the researched information for optimal positioning in a developing country for the success of a product or service.
The positioning research process and the methodology in developing an optimal positioning in developing countries are discussed in the following articles.
Positioning Base Research
A thorough study should be done on the local market where the brand is going to be launched in a developing country with relation to prior market structure studies, market segmentation information, branding research, and competitor advertising campaigns. This is done through interviews with field sales, product development, and customer service staff apart from the ultimate end users themselves. The sales staff of a company’s marketing channel may have their own brand preferences and their perception of customers. The sample of client customers and competitor loyal customers also yield valuable information about how customers see and define the market place.
Positioning Qualitative Research
The unique market dynamics of a developing country requires employing unique qualitative methods, with a typical starting point of a round of interviews from the chosen small sample. These interviews are designed to uncover buyer perceptions of the brand choices and their differentiation qualities. The buyers are encouraged to talk freely in a wide ranging manner about their experiences and market perceptions. The focus here is entirely on finding out the reasons based on which the buying decisions are made. This process enables a company to define its market in a developing nation. (Qualitative Market Research Methods).
Positioning Quantitative Market Survey
Buyer attitudes in developing nations may differ to varying extents when compared to those of developed nations. This being the case, positioning requires in depth interviews with sample customers to find out about brand category perceptions and buyer attitudes. The differentiation power of the brand being launched thus can be gauged through this screening process.
Qualitative Research: Depth Interviews
This method involves engaging a participating respondent over a period of time, usually around a week or in some cases a little more than a week for finding out about their perceptions and the changes in the same over a relatively short period of time. Many high profile companies have gone in for this method in recent times particularly in developing nations, enabling them to study consumer behavior patterns in developing countries in a more detailed manner. (Quantitative market research capabilities).
The Value of the Qualitative Step
Qualitative research is an important process in uncovering consumer motivations and understanding the consumer’s perception of a brand in their own language. This enables companies to formulate a positioning and promotional strategy and lay the groundwork for the product launch and advertising campaign, at a later stage.
Focus groups or customer discussion groups are also useful in the early stages of positioning strategy decision making in developing countries. Focus Groups usually consist of six to eight targeted consumers whose numbers could vary based on a particular product or service, a moderator whose role is to ask the required questions, draw out answers, and thereby encourage discussion, and in most cases an observation area usually behind like one way mirrors and video or audio taping facilities. This could be done in person or online to get inside the buyer’s psyche which may offer rich marketing information, at a lower cost to the company conducting the research. (Focus Groups).
Since every developing country or any country for that matter has definite ethnic differentiating factors, a thorough study of the ethnographic factors unique to the country has to be carried out as part of the preliminary research. This could be done through various methods such as watching people do in and around the product category. Observing consumers engage in store shopping or using products in their home are some of the tools that are employed in ethnographic studies. A good example for this would be a pet food company employing a video study asking pet owners to video tape their pet and their activities at home, enabling them to understand a pet’s food patterns and how their owner’s perceive pet food as being helpful.
The entire qualitative research process enables a company to formulate a positioning strategy and define their current position and device their communication strategy based on the results of the detailed research.
Based on all the data collected during the entire research process, attitude measurement becomes a possibility. Companies with all the relevant information about consumer behavior patterns and perception of their product or service are now armed with the draft strategy to be implemented along with the product launch. The researched data helps in evaluating the consumer’s perception of a particular company’s product or service, which helps in optimal positioning.
Since the entire market research process includes lots of personal interviewing, self-reporting from the consumers is an authentic source of data, where the subjects themselves openly come out with their preferred choices. Observation carried out in stores and other places as part of the research methodology helps in coming close to perfectly measuring the attitude of consumers in a developing nation. This kind of first hand information or primary research data is perhaps the most important data collected during the research process. Since companies literally get to hear ‘from the horse’s mouth’, they can rest assured and device the entire promotional campaign, with special emphasis on the advertising campaign based on the data collected. The data collected also provides valuable inputs on the cultural and demographic distinctness of a particular market. Such information is of vital importance because a countries cultural preferences and differences play an important role in influencing consumer behavior patterns of that particular country.
The overall formulation of optimal positioning based on consumer behavior in developing countries becomes a relatively easy process with scientific analysis of the researched data. All the information gathered through the research process when shared among a company’s different departments, helps in formulating the entire promotional campaign, with inputs from the respective departments. The advertising and promotional campaign can then be strategically devised for the optimal success of a product or service being launched in a developing country.
Sainsbury vs. Tesco
Sainsbury is another leading chain of stores in the UK, it is considered to be a very posh store and the prices of the products reflect the same. In the year 2005 the operating profit of the company fell from £675m to £254m which was a very big worrying signal for the members of the organization. The members tried really hard to make the chain of stores recover from this loss and gradually succeeded in doing so. “Sainsbury’s performance, which compares with the record £2bn profit produced by rival Tesco, was well received in the City. Describing them as ‘a solid set of numbers’ analyst Iain McDonald at Numis said the group had probably managed to maintain like-for-like sales growth at near 1.7% since the year-end. He raised his current-year profits forecast from £248m to £300m.” (Sainsbury Signals Recovery).
The store in order to compete with the liked of Tesco and other major stores based in the UK cut prices on as many as 1000 items and the customers realized the same and ended up purchasing more items from the store which meant a sharp increase in the sales took place. The same reflected in the market share of the company which rose from 15.4% to 15.8% and this happened in the gap of as little as four weeks. Tesco’s chief executive was paid a bonus of £2m and to keep up with the same Sainsbury also announced that if the chief executive of the company is able to reach the target sales, he would also be richly rewarded for his efforts.
“On average, Sainsbury’s is ‘slightly cheaper than Morrisons and slightly more expensive than Tesco and Asda’. A Grocer magazine survey claims that Sainsbury’s has been cheaper than the ‘industry average’ for the past two weeks and King pledges to retain this position. (Sainsbury’s Declares Price War).
Sainsbury aggressively cut the prices of its products in order to attract the attention of the customers and the same paid off as the profit of the company increased. Another competitor Asda, at the very same time increased its prices to 3.3% and Tesco on the other hand also recorded an increase in its prices by 1.5%. Tesco and Sainsbury have been involved in more battles than one and the same has been going on for decades. Both the Stores wanted to build a store in the centre of Wolverhampton in order to expand.
“Sainsbury’s owns more than 70 per cent of the land but planning chiefs in the city have named Tesco as their preferred developer for the project, which could also include building homes and shops. It is believed Tesco’s vow to transform the nearby derelict Royal Hospital site, which it owns, into an office and housing development, helped it clinch the deal.” (Tesco’s Vision for City Store). Sainsbury has plans of making use of the land by doing multiple things like having a petrol Station, Constructing private flats etc and the whole project was believed to be roughly about £65 million. Sainsbury even launched a high court appeal in order to ensure that they subdue Tesco. The long saga will continue for years to come.
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